Self Directed IRA Investing

I just finished negotiating and creating 2 new Notes for my Self Directed Roth IRA that will contribute another $591 /mo for at least the next 6 months, unless extended.   That will bring the monthly Cash Flow to $1500.   1 is a Short Term note that matures in 6 months and the other is 24 months long Mobile Home Note.   I’ll share the details below.  These are small Notes but nevertheless I think they are worth doing. 

Details of the Short Term Note for 6 months.

The property owner contacted me to borrow a total of  $15,000.  I had half in my IRA and had a friend that wanted to lend the other half.  We went to look at the property that the borrower wanted to secure the loan against.  On it he is operating a business with a monthly cash flow that will be able to make the payments on the loan he is seeking.   The property is worth between $750-1 million and less than half encumbered.  That means that the LTV is no more than 50%.    I knew the property owner from another deal I help put together.  So now I could see how he used the money he borrowed from the previous deal.  Telling me that is using the money he’s borrowing for what he says he is. 

I’ll let you figure out the Yield on this little Interest only Note but as I’ve heard others say it’s good enuf.

Note Face: $7,500   Interest rate/Yield: ????  Term: 6 months   Payment: $312.50 

Details of my New 24 month Mobile Home Note.

My favorite Mobile Home Park Manager called me last week.  She wanted to see if I would help out one of her tenant’s.  She told me that the person had a free and clear home worth about 12-15K.  Since I knew this park and where the home was located I agreed that the value was about right. 

The MH Owner wanted to borrow about 5K for various things.  I called and talked with the owner and verified that she has the desire and income to pay back the loan. 

Again the Yield is good enuf, as some folks I know say.    The Yield is greater than the interest rate becuase the borrower is borrowing $5,000 but the note is for $6,000, creating a discounted Note.

Note Face: $6,000   Interest Rate: 12%  Term: 24 mo.   Payment: $ 279.64 

Yield: 33%

 Will

I’ll be honest, I’ve never been to Las Vegas before, Sin City….what a place!   Lights, noise, lots of money, some crazy people, however glad I was only there for 4 days.   I’ll bet you won’t be able to guess what my Roth IRA and Las Vegas have in common.    Since you probably won’t be able to guess quickly……I went to Las Vegas to attend a Note Convention.   It was the 21st annual Noteworthy Note Convention and I decided to go this year, for the first time.  I wanted to see first hand what was going on during the conventions I had heard about for the past years.  

I flew down there with an open mind to see what I could learn and maybe pick up a few new ideas.  Well let me tell you.  I met lots of interesting people in the Note business from all over the country, learned new marketing techniques, listened to the Keynote speaker Shel Horowitz speak about Business Ethics ( in Las Vegas of all places), and generally had a good time. 

I know your going to ask how a Note Convention is going to benefit my IRA since it’s not a business in it’s own right, and why I’m writing about it here, so here’s how I think it will help my IRA.

• The folks I met in the Note Business I think will help to put thier mark on my IRA.    Networking with these folks may give me an opportunity to do deals together, when I have cash to invest.   I think I could email or call a few of them to hear thier opinions on future investments.  
• The Marketing techniques learned will help my own fledgling Note Business, Northwest Funding Solutions, LLC,  get moving.  Through that I may find Notes that will be good to buy in my Self Directed Roth IRA.
• Shel Horowitz’s talk about Business Ethic’s and putting people first made a lot of sense with me.  I can completely agree with him that when you do anything with honesty, integrity, and passion then there is no limit to your success.  I bought his book “Principled Profit”.  He has a Ethics Pledge that he’s challenging business owners to live up to and spread the word about.

I’m sure that the Convention will give me more to write about for the next few months, so stay tuned.

I’ll be sure to put the Note Convention on next years calender….

Will

I’ve been thinking for the past few weeks how best to organize and show important data like ROI and Cash on Cash Returns.   I’ve explained in detail my Yields or ROI in other posts.    Cash on Cash Return is the Yearly Cash Flow divided by the Cash Invested.  With out figures like that and a way to vaildiate them, quoted figures are hard to understand.   

I’ve taken all the important parts of the Notes I have in my Roth Self Directed IRA and logged them into a spreadsheet. I’m going to stick with this sheet and add to it every month.  I’m open to comments and if you think there is a better way to show what I have in my spreadsheet please email me or leave a comment, I’m interested in your ideas.

Here’s what I came up with. 

If you scroll down in the spreadsheet you’ll see that so far my Self Directed IRA has a Total profit of $10,927.89 and my ROTH IRA is worth $63,145.36

The return so far is 20.93% .  I came up with 20.93% by dividing my Profit by the Cost of Investments.  My Cash on Cash Return for this coming year will be 24.64%. 

I arrived at the Cash on Cash Return for the year starting last June 2007, because that’s when I started to have the current cash flow of $1072.13 a month.  The period for the Cash on Cash Return is from June 2007 to June 2008.  I think it’s a good benchmark to see if what you are about to do is worth the effort, however it not good enough for me to rely on that alone.

I Hope this helps to make it easier to understand why I take the effort to actively manage my own IRA account.  As always comments are welcome.  I think I have another Note I’m going to create and add to my Portfolio, I’ll write a post next week if the deal goes through.

Will

It’s been quite a while since I made a post.  Since my last post I’ve analyzed a few Notes to see if they would fit into my Self Directed IRA.  Because of my small amount of investable cash I need to find some smaller, but nevertheless secure Notes.  You can see from my post here that as of last Aug I had  $ 6,800.00 in cash to invest with.  

Here’s this months cash flow that incereased my Cash to over $9,000.00 this last month.

Now 1 month later I’m up to $9,183.89 

A friend of mine has sent a few Notes my way and 1 of them looks good to me.  If the deal goes through I’ll write a post about it. 

Will 

So now you’ve read some of my Blog and see that I’m currently investing in Real Estate Notes in my Self Directed IRA and have cash flow coming in every month. 

Now your ready to open up your own Self Directed IRA to start your own investing program.  If you have an IRA already but it’s not Self Directed you can roll that over into a SDIRA if you like, or just open up a new one and try it out.   Just be aware of how much you contribute to make sure that your not going over the allowed limit for the year.  Also be aware of taxable events for example, if you roll over a traditional IRA into a Roth.  I would also take a little time to look at what each custodian offers to make the best choice for you.     

Until a few years ago there were just a few choices but today there are quite a few.  Here’s a list of the Self Directed IRA Custodians that I know of.   *****I’m merely listing them on my blog not advertising for anyone in particular or getting anything for it*****.

1. Equity Trust
2. Pensco Trust
3. GuidantFinancial
4. Sunwest Trust
5. Check Book IRA.com    
6. Viking Bank  a local bank for those of you in Seattle, WA.

The above list is certainly not all the SDIRA Custodians, just the ones I know about. Use Google to possibly find more.   All of their websites are quite complete with specific information about how to use their services.   Equity Trust is the only one I know of that has a blog as well.

 I hope this helps those wanting to get started but not sure where to start.

 Will

The 4 Step Grand Plan:

1. Use my Self Directed Roth IRA because of the TAX FREE benefits.  I’m also betting that all the rules pertaining to it stay the same.  I expect to be able to contribute 4,000.00 per year to it for the next 25 years.  If I stop adding additional money every year then I will end up with less but it will still be over 2 million.

2. Because of the Power of Tax Free Compounding, also known as reinvesting profits with the principal, my account will be able get to the 4 million mark in the allotted 25 years.  If I had to pay taxes on all my gains then it would be much harder and take much longer to attain this lofty goal.

3. I’m starting with $52,216.00 in my Roth IRA.  I rolled over several IRA’s and a 401k to get that much together in my Self Directed Roth IRA account.  You can see that from my last post   http://willsugg.com/irablog/2007/08/10/i-have-4-notes-in-my-self-directed-roth-ira/ what I had in cash, because of what I paid for the Notes I currently have in my portfolio.

4. If you throw out the highest Yield of 72% in my current portfolio, and average the rest.   I’m investing at 17%.  I expect to be able to continue to find good Note investments for that return or greater, as needed in the future. 

If this sounds too good to be true here’s the math broken down for every 5 years to prove it.  The chart below shows that I start with $52,216.00 add $4,000.00 every year and invest at 17%.

If I cannot contribute to my Self Directed Roth IRA account every year due to something like income limits, I can still reinvest the cash flow my investments produce.  Assuming that I keep the rest constant I will have $2,645,149  for Retirement.

I’m sure someone will also point out that in 25 years my account will be worth 2.6 to 4 million but it won’t all be in cash.  That is correct, but I will expect that the cash flow my Self Directed Roth IRA portfolio produces at that point will be quite welcome and I can start selling Notes when needed.  I also expect that I will have bought a Vacation Home using my IRA money along the way, as well as diversifying into other asset classes as well.  It’s going to be an interesting 25 years, that’s for sure.

Will

Currently, I have 4 Notes in my Roth Self Directed IRA plus some cash.   They are not all the same type of Notes either and are not all secured by the same type of collateral. 

Here’s what’s in my Roth Self Directed IRA:

1 Mobile Home Note

2 First Position Mechanic Lien’s

1 First Position (T-I-C) Hard Money Loan.

Plus $6,680.51 in Cash.

Those 4 Notes produce a positive cash flow of $1052.13 */ month for my Self Directed Roth IRA.  In case your wondering what the Yield is on these 4 Notes I’ll break them down for you.

As you can see by far my best Yield is on the Mobile Home Note.  When my cash accumulates enough I’ll buy another Note to increase my cash flow. 

If I can do this, you can too…..

Will

* I’ve subtracted the Note Collection fee of $10.00 / 2 notes.